30 April 2019

A new report published today by Oxford Economics has found that a decade after the financial crisis, bank lending to small businesses has failed to recover significantly.

  • New report finds bank lending to small business remains stagnated a decade after financial crisis
  • Small business lending makes up a tiny proportion of banks’ overall balance sheets, resulting in poorer terms and conditions for SMEs versus larger firms
  • SMEs increasingly turning to non-bank options such as online lending in the UK, US, Germany and the Netherlands

The “Big Business of Small Business” report, launched in partnership with Funding Circle, finds that small business lending makes up a tiny proportion of banks’ overall balance sheets. In the UK, small business lending accounts for only 2% of banks’ balance sheets, and this figure is even less in countries such as the US (0.7%) and the Netherlands (0.6%).(1)

Despite the vast economic output generated by SMEs, who are responsible for 60% of all jobs in industrialised countries and 50-60% of GDP(2), banks are continuing to focus on loans to larger firms. Since 2015 in the UK, lending to large firms has increased by 43% since 2015, whilst during the same period lending to SMEs has decreased by 3%(3).

The report also reveals that when small businesses do access finance from their bank, it is typically on worse terms than those received by larger businesses, both in cost and the terms associated with the loans. This is a trend seen across the UK, US, Germany and the Netherlands.

This ongoing stagnation in bank lending to SMEs is in stark contrast to the continued rapid expansion in SME activity. In the UK, the report states that the total number of SMEs has increased by over 260,000 since 2015,(4) and separate studies found that the number of small Dutch firms has grown by 4.5% since 2007 and (5) 240,000 more SMEs were established in the US in 2016.(6) In Germany, the number of people employed by SMEs has increased by 22% since 2008.(7)

The lack of support for SMEs from traditional providers has resulted in more turning to non-bank options such as online lending when seeking finance, (8) driving huge economic growth as a result. In 2018 alone, Oxford Economics found that lending through Funding Circle contributed £6.5 billion (measured in “gross value added”) (9) to the global economy.

Launched in 2010, Funding Circle allows a wide range of investors to lend directly to small businesses. The loans outstanding at the end of last year are found to have unlocked 115,000 jobs across the four markets studied in the report.

Sam Moore, Managing Director of Economic Consultancy, Oxford Economics, said: “This report offers a stark reminder both of the critical role that SMEs play in all four countries analysed, and the uphill challenges they face when dealing with the traditional banking sector. This could act as a serious curb on future growth, so the substantial increase in Funding Circle’s lending profile from 2017—and the huge impact it is having across all four economies—should be welcomed by policymakers and every sector of the business community.”

 Charlotte Crosswell, CEO of Innovate Finance said: "We welcome this new report highlighting the importance of small and medium-sized businesses to the global economy and the difficulties they face, as we know that many struggle to gain financial backing from traditional channels. Digital lending from FinTech firms has the potential to transform this industry, offering them almost instant funding without the need for complex paperwork."

 Samir Desai, Funding Circle co-founder and CEO said: “Today’s news highlights the extent to which technology has transformed the financial landscape, and the increasing importance of online lending to small businesses. This sector has been hugely underserved globally for decades despite the economic importance of SMEs. Small businesses mean big business, and that’s why we’re passionate about helping them to succeed.”

Across all four markets that Funding Circle operates, the small business lending market is generally observed to be the most poorly served by banks. As a result, small businesses are increasingly moving away from thinking ‘bank first’.  

United Kingdom

●      Bank net lending to UK small businesses has fallen significantly, totalling £518 million in 2018 compared with an average of £2 billion previous three years. (10) During the same period, net lending through Funding Circle was £723 million.

●      5% of SMEs applying for external finance over the previous 12 months applied to a lending platform (up from 1% in 2014), and the share applying for a bank loan fell from 48 to 38% over the same period.

United States

●      Banks relaxed their approval standards for loans to large and middle-market firms much more than to small firms in 2018, and further disadvantaged SMEs in how they changed the terms and conditions on these loans.

●      The proportion of SMEs applying to online lenders increased from 20% in 2015, to 24% in 2017.


●      While medium-sized German businesses are able typically able to access finance, it’s much harder for German micro-businesses (firms with 1-9 employees). They face stringent terms and conditions and high administrative costs imposed by banks.

●      Use of “other” forms of finance (including online lending) has grown considerably among micro-businesses, from 1% in 2015 to almost 2% in 2018, as the uptake of traditional forms of finance has fallen over the same period.

 The Netherlands

●      Dutch banks have yet to reverse the deterioration in terms offered to SMEs, relative to larger firms, that became evident nearly 10 years ago. Bank lending to non-financial businesses has also continued to fall in 2018—greatly affecting firms applying for smaller loans.

●      In H1 2018, 19% of SMEs reported a greater demand for other types of finance, including online lending, ranking above the share of firms wanting more bank loans.

When it comes to accessing finance, Funding Circle offers a 21st-century approach: a simple online application powered by innovative technology and advanced data analytics, accessible no matter where a business is based. As a result, 73% of Funding Circle’s small business customers approached it first, ahead of a bank, and 84% say they would return to Funding Circle first in the future. (11)

Since 2010, Funding Circle investors—including 90,000 retail investors, banks, asset management companies, insurance companies, government-backed entities and funds—have lent £7 billion to more than 68,000 businesses in the UK, US, Germany and the Netherlands. Through its platform, Funding Circle is contributing to the growth of the small business lending market and expanding access to financing at competitive and transparent pricing.

Download the full report here.



(1) Bank of England, US Federal Reserve, FDIC, ECB, De Nederlandsche Bank. Germany: Data on banks stock of outstanding loans unavailable.

(2) OECD, (2017), ‘Small, Medium, Strong. Trends in SME Performance and Business Conditions’, 15 May

(3)In the banking statistics published by the Bank of England, SMEs are defined as firms with an annual turnover on their main business bank account of less than £25 million.

(4)BEIS, Business Population Estimates for the UK and regions 2018, 11 October 2018.

(5)OC&C SME Lending Market

 (6)United States Small Business Economic Profiles for 2018

(7)European Commission 2016 SBA Fact Sheet, Germany

(8)UK BEIS Small Business Survey 2017, US Small Business Credit Survey, DE SAFE survey, NL SAFE survey.

(9)Gross value added (GVA) is a measure of the increase in the value of the economy due to the production of goods and services. GVA plus taxes (less subsidies) on products is equivalent to gross domestic product (GDP).

(10)Bank of England. ‘Bankstats (Monetary & Financial Statistics)’ – Table A8.1 ‘Monetary financial institutions’ loans to non-financial businesses, by size of business’ under ‘Net loans (exc overdrafts).

(11)Based on a survey of 1,544 Funding Circle customers across the UK, US, Germany and the Netherlands

For more information

press@fundingcircle.com / +44 (0) 203 667 2245


 About Funding Circle

Funding Circle (LSE: FCH) is a global SME loans platform, connecting SMEs who want to borrow with investors who want to lend in the UK, US, Germany and the Netherlands. Since launching in 2010, investors across Funding Circle's geographies - including more than 90,000 retail investors, banks, asset management companies, insurance companies, government-backed entities and funds - have lent more than £7 billion to 68,000 businesses globally. Funding Circle is a member of the FTSE 250 Index.

About Oxford Economics

Oxford Economics was founded in 1981 as a commercial venture with Oxford University’s business college to provide economic forecasting and modelling to UK companies and financial institutions expanding abroad. Since then, it has become one of the world’s foremost independent global advisory firms, providing reports, forecasts, and analytical tools on more than 200 countries, 250 industrial sectors, and 7,000 cities and regions.

Headquartered in Oxford, England, with regional centres in London, New York, and Singapore, and offices all over the world, Oxford Economics now employs more than 250 professional economists, industry experts, and business editors—one of the largest teams of economists and thought leadership specialists.